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Having recently read Freakonomics I was particularly interested by the idea of the responses of a community to incentives - as an example, the tale of a school which tried to introduce a financial penalty for picking up children late, which inadvertently had the opposite effect, as it nullified the previously existing (but largely invisible) social penalty.

Is there a general theory for this kind of interaction of incentives with community? If so, what is its name, and where could I read more about it? I'm interested in books and papers on a variety of levels, from popular accounts (à la Freakonomics) to textbooks to research papers.

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2

This is pretty much all economics. Just depends on the scope of your community (localized, national, firms, individuals, etc.), and the incentives (prices, taxes, interest rates, punishments, etc.). I suspect what you're looking for would be contained in the broadly-defined category of applied microeconomics, but unless you can better articulate what exactly it is that you want, I'm not sure how much help anyone can be.
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prototoastMar 25 '12 at 16:21

@prototoast, yes. And you could throw in parts of sociology and political science as well.
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Michael BishopApr 25 '12 at 16:49

If you haven't run across them already, I'd recommend books by Malcolm Gladwell, particularly The Tipping Point. It has a competing explanation for the crime drop (less graffiti), though personally I found the Steve's argument more convincing (more abortions).
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BobStein-VisiBoneMar 31 '13 at 18:05

Behavioural economists have found that all sorts of psychological or
neurological biases cause people to make choices that seem contrary to
their best interests. The idea of nudging is based on research that
shows it is possible to steer people towards better decisions by
presenting choices in different ways.

Some of the approaches, for instance used by the British Behavioural Insights Team, are merely ways of changing a message:

The Nudge Unit has been running dozens of experiments and the early
results have been promising*. In one trial, a letter sent to
non-payers of vehicle taxes was changed to use plainer English, along
the line of “pay your tax or lose your car”. In some cases the letter
was further personalised by including a photo of the car in question.
The rewritten letter alone doubled the number of people paying the
tax; the rewrite with the photo tripled it.

It's become a very fruitful area of research so would recommend taking your interest further.

I suspect economics is not the best framework for this because financial incentives are actually very limited in their efficacy in real-world contexts. The example in the question is a good demonstration: the financial incentive was a lot weaker than the social incentive it replaced. Applied Psychology might be a better place to look, in part because it requires a more or less explicit theory of decision-making and behavior change.

A set of strategies is a Nash equilibrium if each represents a best response to the other strategies. So, if all the players are playing the strategies in a Nash equilibrium, they have no unilateral incentive to deviate, since their strategy is the best they can do given what others are doing.

Change the incentives in a community, and it can be expected to migrate from one Nash Equilibrium to another. This would attempt to account for the knock-on or ripple effects, e.g. late pick-up fee makes parents less respectful of the teachers who have to stay late, and resentful teachers make students more cynical, etc.